Rupee Slips By 26 Paise/Dollar, Repo rate kept unchanged at 6.5%

Rupee lost 26 paise against the US dollar in early trade on Wednesday ahead of the outcome of the fifth bi-monthly policy review of Reserve Bank of India.

Investors were treading the cautious path ahead of the RBI policy decision.

The rupee also came under pressure following a downtrend in domestic equity markets amid foreign fund outflows. On Tuesday, the rupee had settled at 70.49 against the dollar.The dollar index, which measures the greenback against a basket of six major currencies, edged up about 0.2 per cent, even though the US currency was under pressure as declining Treasury yields raised concerns over economic growth.

Reserve Bank of India (RBI) kept its policy rates unchanged on Wednesday, as was widely expected, and cut its inflation forecast for the rest of the financial year, citing a sharp fall in crude oil prices and food “deflation”.

The central bank also introduced proposals to improve policy rate transmission and credit discipline, besides initiating a predictable liquidity injection over the next six quarters, starting January, through a phased reduction of 25 basis points (bps) every quarter in statutory liquidity ratio (SLR).

The six-member monetary policy committee (MPC) voted unanimously to keep the policy rate unchanged at 6.5%. Barring Ravindra Dholakia, the MPC voted in favour of maintaining the earlier stance of “calibrated tightening”. Dholakia, known for his dovish stance, voted to change the stance to neutral.

Taking into account easing of food inflation, crude prices and an appreciating rupee, the MPC slashed its inflation projection to 2.7-3.2% from 3.9-4.5% for the second half of the current financial year. It expects inflation to quicken to 3.8-4.2% in the first half of the following year.